Cost of insuring peripheral euro-zone debt drops

WilliamL. Watts

LONDON (MarketWatch) -- The cost of insuring Portuguese, Spanish and other euro-zone government debt against default fell sharply Wednesday morning, retreating from record levels. The spread on five-year Spanish credit default swaps, or CDS, narrowed by 30 basis points to 337 basis points, according to data provider Markit. That means it would cost $337,000 a year to insure $10 million of Spanish debt against default, down from $367,000 on Tuesday. The Portuguese spread narrowed to 500 basis points from 551, while the Italian spread narrowed 28 basis points to 243. In the core of the euro zone, the Belgian spread narrowed by 14 basis points to 190, while the French CDS spread fell by 10 basis points to 95. Remarks late Tuesday afternoon by European Central Bank President Jean-Claude Trichet, which were construed as leaving the door open to increased bond purchases by the central bank, were credited with tightening the spreads, said Gavan Nolan, vice president of credit research, at Markit.

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